The world continues to miss the forest for the trees.
Stocks are soaring today because Greece agreed to another austerity program. However, all this really means is that negotiations can begin for another Greek bailout.
Meanwhile, Germany’s Finance Minister, Wolfgang Schauble, the man who controls the purse strings for Greece, commented that a “Grexit,” may be preferable to another Greek bailout. Is this political posturing to force Greece to take a bad deal or a legitimate view that Germany has finally had enough?” No one knows. But it certainly doesn’t indicate that another Greek bailout, if it occurs, will go smoothly.
The bigger issue is the collapse of the Euro. The European currency has ended its bounce and is now rolling over sharply.
Why does this matter?
Because the Euro makes up 56% of the basket of currencies that price the US Dollar. So whenever the Euro falls, it pushes the US Dollar higher.
Globally, there are $9 trillion in US Dollar shorts in the financial system. These shorts are represented in the form of a carry trade: when you borrow in one currency to invest in another, pocketing the difference in interest rates.
The US Dollar carry trade is north of $9 trillion… literally than the economies of Germany and Japan COMBINED.
When you BORROW in US Dollars you are effectively SHORTING the US Dollar. Usually this is done with a LOT of leverage (sometimes an investor might have $1 in actual capital for every $50 he or she borrows).
So when the US Dollar rallies… you have to cover your SHORT or you blow up.
THIS IS A REAL PROBLEM FOR THE FINANCIAL SYSTEM AND IT IS MUCH MUCH LARGER THAN GREECE.
Indeed, the US Dollar correction looks to be over with the US Dollar having broken out of a falling wedge pattern. This is a VERY bullish development and it opens the door to a move to 120-130.
This will absolutely EVISCERATE that $9 trillion in US Dollar shorts. And it will IMPLODE the emerging market space as well as US corporate profits.
This is PRECISELY what kicked off the 2008 Crisis in July 2008.
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